SHAREHOLDER ACTIVISM

Government should lead

The ANC in Gauteng is trying to add content, which has been lacking, to the ruling party’s repeated calls for radical economic transformation. It proposes that the retirement industry plays a more activist role in changing the structure of the economy to increase black ownership and steer investments towards projects that will have more impact on the lives of ordinary South Africans (TT March-May).

For at least a decade, the ANC has pronounced its desire for SA to become a “developmental state” -- a term used to explain the extraordinary economic growth of the Asian Tigers. A defining feature has been state control and influence over the financial sector, which was kept on a short leash and made to serve numerous developmental objectives.

This was based on a view that the financial sector, left to its own devices, would allocate capital towards unproductive investments. But the SA government has lacked the political will to promote a real developmental state, although it has some influence in the financial sector. It remains to be seen how the ANC Gauteng’s proposals will be implemented.

In a discussion document released ahead of its provincial conference last October, the ANC in Gauteng lamented that the apartheid economic structure was still intact after 20 years of democracy and freedom. The document said two issues that required urgent attention were ownership and control of the means of production.

It noted that the “commanding heights of the economy” were still owned by a white male minority. “Black ownership of the JSE is a meagre 3%, with this ownership unfortunately encumbered by debt,” the document said. Whilst this was a matter of grave concern, there was a need for a deeper analysis of ownership. The document said retirement assets were worth about R3 trillion and accounted for the largest pool of capital in SA.

“It is estimated that retirement funds own at least 30% of the companies listed on the JSE. If transformation is to be taken forward in a significant way, this group of shareholders will need to become active and utilise their strength to accelerate transformation of the JSE,” the proposal (now provincial policy) continued. “Given this context and the call for radical economic transformation as envisaged through nationalisation from other quarters, it should not be far-fetched to state that, through retirement funds, ‘the people already share in the country’s wealth’. The only challenge is that they are not directing the means of production by actively engaging and being represented at governance levels of companies.”

In an interview with TT, published in the most recent edition, ANC Gauteng chairPaul Mashatile said retirement funds have millions of black members: “They have rights as shareholders, and by exercising those rights they can influence the ways that their money is invested. Their investments should help support the development agenda, not golf resorts and similar projects that do not benefit workers. It’s wrong that ordinary workers contribute to retirement funds merely to find that their monies are invested in projects that don’t meaningfully change their lives.”

Most South Africans would agree that financial institutions should invest less in the endless shopping malls in wealthy neighbourhoods and luxury residential resorts, rather to focus more of effort on identifying profitable developmental projects that create employment. Government has the power to lead transformation of the retirement industry.

A report by 27Four Investment Managers estimated that the SA investment and savings industry was worth R6,5 trillion in September 2014. At end-December 2014, the JSE had a market capitalisation of R11 trillion. This suggests that other investors, significantly foreigners, then held shares worth R3,5 trillion or 32% of the JSE’s market capitalisation.

According to the latest annual report of the Pension Funds Registrar, retirement funds had assets of R3,21 trillion at end-December 2013 of which the Government Employees Pension Fund (GEPF) alone represented R1,26 trillion. The report also put the top 22 public sector funds at R1,61 trillion (including the GEPF), or roughly 50% of total retirement-fund assets.

Since a substantial portion of these assets is invested on the JSE, it is likely that public-sector pension funds already own some 10% of JSE-listed assets. The GEPF would then account for 39% of industry assets.

The 2014 GEPF annual report showed that it held significant investments in financial services companies. These included 10% of Old Mutual, 14% of Sanlam, 13% of Standard Bank and 8% of FirstRand.

If it seriously wants industry transformation, along the lines suggested by the ANC in Gauteng for more activist shareholders, government is in strong position first to use its influence over the public-sector funds. Then it will also provide leadership for stakeholders as a whole.

* Gqubule is founder of Kio Advisory Services, a consultancy on issues related to economic transformation, and was formerly a board member of Cosatu research body Naledi.